AT a time when sizeable tech companies in the region are looking at listing opportunities, fintech and loyalty platform Fave decided, instead, on the acquisition route.
On the day that ride-hailing giant Grab made public its SPAC merger deal with Altimeter Growth Corp as a prelude to a listing in the US, Fave announced that it had been acquired by Pine Labs in a cash and equity deal valued at over US$45mil (RM185mil at the time).
But Fave co-founder and chief executive officer Joel Neoh is “pretty happy” that the acquisition deal with Pine Labs in April had gone through.
For one, the injection of capital from the deal gives Fave deeper pockets to fund its newly launched FavePay Later product, which it hopes will spur higher sales for its merchants while enabling consumers to make higher value purchases with easier access to credit.
The pay later feature allows consumers to split purchases over three equal, interest-free instalments. So for a RM90 purchase, for example, the consumer will only pay RM30 first while the remaining RM60 will be paid in the subsequent two months.
“We would pay the merchant RM90, minus the transaction charges. Then the consumer will pay us RM30 first and we’ll set up an auto debit onto their card to pull the remaining over the next two months. To some extent, we are funding it from our balance sheet.
“So with that larger access to capital, that’s where we find that this product makes sense for us to provide to consumers. Without that acquisition happening, it would be a bit more tricky because we do need more resources,” he says.
Buy-now-pay-later (BNPL) solutions – a type of short-term financing that allows consumers to make purchases and pay for them at a future date – has been gaining traction in markets like the US and Australia, which have a number of listed BNPL players.
Demand for BNPL in South-East Asia is also poised for growth. Some research reports estimate that the global market could grow from US$7.3bil (RM30.85bil) in 2019 to US$33.6bil (RM141.99bil) in 2027, led by Asia Pacific.
Instalment payments are not new in Malaysia, particularly for big ticket items like household appliances. But given the current weak economic landscape, Neoh points out that there is also a natural demand for smaller, short-term credit.
In the first 12 days following its launch in end-June, FavePay Later saw some “fast” traction, with half of the transactions used with food and beverage merchants. The other half were used for retail purchases such as electronic products, kitchen appliances and homeware.
“But it is still early days. We’ll probably have more data to see what consumers really value from this, maybe three months from now.”
While there is growth potential for BNPL products in Malaysia, and in the region, the challenge for the segment is the lack of regulation at the moment. Neoh notes that there are active talks among regulatory bodies in the region and that the regulatory pieces should come together in the near future.
But, consumers may be cautious with BNPL solutions given that they are a fairly new product in the market. There are, notably, debates over whether such ease in access to credit would lead to a build-up in debt.
“Generally, the credit we are giving to the consumer is not beyond what they can repay. So if someone is earning RM2,000-RM3,000, the credit that they’ll get from us is about RM1,000-RM1,500.
“So this just gives them the flexibility to manage their cashflow better but it’s not extravagant in a way that would suddenly induce a huge debt.
“If you look across the world, BNPL non-repayment rates are actually in the low-single digits. So that means you are actually giving people just enough money, or slightly below, and it’s actually comfortable for them to use,” he explains.
Apart from a low non-repayment rate, a key measurement for the success of FavePay Later, says Neoh, is in its ability to help merchants convert their customers better and allow more customer spend at their stores.
“This is because the merchants are paying for this product. For BNPL, consumers are getting the credit interest-free. Some BNPL providers would charge a late fee. But the main fees, anywhere from 3%-5%, would be charged to the merchant.
“So when merchants start to see that spend is going up, then it works.”
If FavePay Later does indeed boost sales for its merchants, this would naturally drive new revenue for Fave, which reportedly achieved profitability at the end of last year.
According to Neoh, the first 12 days saw customer spend increasing by three to five times.
The India pivot
The deal with Pine Labs does not only give Fave a bigger capital backing, it has also paved the way for the latter to explore the fast-growing payments market in India.
While opportunities abound in the South Asian market, Neoh admits that the platform would not have attempted India on its own.
“It’s a tough market because there’s so much competition and with 3 billion people there, everyone is hungry for a piece of the market. We would not do it ourselves for sure, not because we are not ambitious, but because it just requires a different setup and different investment profile.
“So when that opportunity came, we thought it was a great time to take all these things that we’ve built in South-East Asia and bring some of it to India in a very local way. So we are building that platform for India from our core products and making it super local,” he says.
Fave is looking to roll out its app, which will also work as a consumer platform for Pine Labs, in India within the next two months.
Pine Labs, whose main operations are in India, processes payment volumes of about US$30bil (RM126.79bil) across 500,000 merchants. For sure, Fave will be able to leverage its merchant network to scale up in the market.
Neoh does hope, though, that its entry into India would also set the pace for more local or South-East Asia-based tech companies to follow suit.
“At a certain point, they need to think beyond their shores. We need to go to where the consumers are. And I think that is what this year has really taught us as well, to take that leap and take this product that we’ve built into India, which is really where the largest consumer population in the world is. India is also the fastest growing country in the world for QR payment,” he says.
“I’m less of the view that we need to have that thinking that the company needs to be in Malaysia, where equity is owned by Malaysian. It doesn’t need to be like that. It’s a global world. We’ve got to think of the bigger opportunity.
“There are a lot of companies that are born in Malaysia. Our founding teams are relatively very Malaysian as well. And for a lot of tech companies, the assets that they’ve built is actually people capital that eventually goes off and they build the next generation of companies and so on. But we do need to think bigger than just Malaysia,” he adds.
And of course, with all that tech listing frenzy going on, Pine Labs is also exploring the potential of going public in the US. Should that happen, it will give Fave wider market access and, ultimately, make it a part of a listed entity.